BELTRAN v. MYERS
Legal provision: Medicaid--provisions of the Social Security Act
ORAL ARGUMENT OF GILL DEFORD, ESQ., ON BEHALF OF THE PETITIONER
Chief Justice Burger: We'll hear arguments next in Beltran v. Myers.
Mr. Deford, I think you may proceed when you are ready.
Mr. Deford: Mr. Chief Justice, and may it please the Court:
The issue of this case is the disparate treatment of a discrete class of Medicaid recipients by the State of California.
California's decision to participate in the federal Medicaid system guarantees that it will be reimbursed 50 percent of its cost by the Federal Government.
However, at the same time California is obligated to comply with controlling federal law.
Unidentified Justice: How do you have your federal jurisdiction here?
Mr. Deford: In the District Court?
Unidentified Justice: Yes.
Mr. Deford: We had it... we alleged jurisdiction under both 1331 and under 1343.
The federal District Court found jurisdiction under both of those grants.
The Court of Appeals decided not to look at 1343, but did find jurisdiction under 1331.
Either of them are cause of actions 1983.
Unidentified Justice: 1331 requires $10,000?
Mr. Deford: At the time this case was brought it did.
The federal District Court and the Court of Appeals both found there was $10,000 in controversy.
Since then, of course, the statute has been amended to eliminate the $10,000.
Unidentified Justice: Just nitpicking.
It's in excess of $10,000.
Mr. Deford: Yes.
Unidentified Justice: Yes, but where did they find the $10,000?
Mr. Deford: For instance, the main plaintiff, Your Honor, has bills to the nursing home in excess of $14,000 because of unpaid nursing home bills.
Unidentified Justice: In other words, what you're saying is they found it prospectively?
Mr. Deford: At the time the case was brought she would not have had bills in the amount of $10,000.
Unidentified Justice: Therefore is there 1331 jurisdiction?
Mr. Deford: Well, since the case was still going on at the time that the statute was changed, I would think that even if there was less than $10,000 in controversy when it was brought, she would have had jurisdiction under 1331 in any event.
Unidentified Justice: Do you think we should treat it as if it had been filed after the amendment eliminated it?
Mr. Deford: I believe the amendment allowed for jurisdiction in the federal district courts for any case then pending.
In any event, as I've said, there was also jurisdiction in the District Court found under 1343, which does not require an amount in controversy.
Unidentified Justice: But then you run into a question, do you not, as to whether this is a proper 1343 jurisdiction case under the Houston Welfare Rights v. Chapman decision of this Court?
Mr. Deford: That was what the 9th Circuit was concerned about.
However, Your Honor, I think under this Court's decision of last summer in State of Maine v. Thiboutot there is definitely a 1983 cause of action.
Unidentified Justice: Well, there is no doubt there's a 1983 cause of action but Thiboutot came from a state court--
Mr. Deford: That's correct.
Unidentified Justice: --Which is a court, presumably a court of general jurisdiction.
We affirmed the state court.
Here the federal courts are of limited jurisdiction and Section 1343 is more limited, we held in Houston, than is 1983.
Mr. Deford: Yes, Your Honor, but we did allege both constitutional and statutory claims under 1983, and I think under this Court's decision in Hagans v. Lavine, Chapman did not alter the Hagans v. Lavine decision, so there is pendent jurisdiction over the statutory claims which we raised in the District Court and which are now before this Court.
The specific concern here is with the state's application of what is commonly known as a transfer of assets or divestment rule against one group of Medicaid recipients known as the medically needy while a corresponding group of Medicaid recipients known as the categorically needy are not subject to such a rule and as even California admits cannot be subject to such a rule under federal law.
Unidentified Justice: Now, what's the underlying policy purpose behind that kind of a statute?
Mr. Deford: The transfer of assets statute?
My assumption is, based on the briefs filed by the State of California that the purpose is to avoid individuals who have sufficient wealth to take care of themselves from forcing themselves onto the public welfare rolls.
Unidentified Justice: That sort of pattern has permeated the statutes right back to the original welfare cases 30 or 40 years ago, has it not?
Mr. Deford: I believe that's true; yes, sir.
Unidentified Justice: Parents can't give their home or their bank account or their stocks and bonds to their children and then go on relief or?
Mr. Deford: Well, that was exactly what Congress has said can be done, both with respect to the Federal Government's supplemental security income program, which provides cash assistance and with respect to the categorically needy who are those Medicaid recipients, especially the aged, blind, and disabled, who are eligible for SSI supplemental security income, and are then automatically eligible for Medicaid as categorically needy.
The medically needy, by contrast, although they are also aged, blind, and disabled, are not eligible for SSI cash benefits, but Congress has determined that they should be eligible for Medicaid once they have spent down their income to the level of impoverishment determined by Congress and by the federal agency.
As far as Congress is concerned, once a medically needy individual, when his income is over the categorical eligibility levels, spends down, that person is to be treated the same as if he or she had originally been found eligible for Medicaid automatically as categorically needy.
The state has argued throughout that its transfer rule applied only to the medically needy does not violate the federal Medicaid statute.
It is our feeling, however, that the statute is supported by its legislative history and by the repeated statements of the responsible federal agency, the Department of Health and Human Services, does not permit more restrictive treatment against the medically needy than against the categorically needy.
The 9th Circuit to a great extent agreed with us on that point, that there was a general requirement of comparability between the medically and categorically needy.
Where the 9th Circuit disagreed, however, was in determining that the transfer rule was not necessarily a violation of the comparability requirement, as there were other rules which were the same between the categorically and medically needy.
Therefore, the 9th Circuit determined that one different rule wouldn't necessarily violate a comparability requirement.
This interpretation, however, directly contradicts the longstanding decisions, the consistent and longstanding interpretations of the responsible federal agency, HHS, and its predecessor, the Department of Health, Education, and Welfare.
Unidentified Justice: At what level were these decisions rendered?
Mr. Deford: These decisions were rendered from the main offices in Washington, sent out to the regional offices throughout the country, which then have notified the various state administrators on various occasions.
Unidentified Justice: Can you... are they in the record?
Mr. Deford: The only... we do not have in the record the original statement which is known as a PIQ.
PIQ No. 77 was sent out in, I believe, in 1977, to the various regional administrators informing them specifically that transfer of assets rules could not be applied only to the medically needy.
What is in the record, however, is a letter that the regional administrator for the region which California is in, sent to Defendant Myers informing her that the California rule was violative of the federal law.
Unidentified Justice: Now, what is a PIQ?
Is that issued by a regulation?
Mr. Deford: It's not a regulation.
It is a specific guideline establishing how HEW and now HHS interprets the way the statutes and regulations of the Federal Government should work together.
Unidentified Justice: Can we find it in CFR or?
Mr. Deford: No, it's not in the Code of Federal Regulations.
Unidentified Justice: Where would one look for it?
Mr. Deford: Presumably... it's not published, Your Honor.
One has to be a regional administrator or to have received a copy from HHS in Washington.
On the other hand, there have been other published documents from the Department of Health and Human Services which have appeared in various other publications which indicate specifically on this point, and then again on the general point of comparability between the medically needy and the categorically needy, that this treatment is impermissible.
Unidentified Justice: Which of those most strongly supports your position?
Mr. Deford: All of the documents which I'm referring to now state both the general rule and a specific rule.
Unidentified Justice: And where are they?
I mean, what citations?
Where would one look for them?
Mr. Deford: Well, as I said, none of them are Code of Federal Regulations documents.
One of the publications that we have cited is published in the CCH Medicare and Medicaid Guide.
It is cited in our briefs, and it is a document which HHS says,
"we have been besieged with a number of questions as to whether or not one can apply the transfer rule only to the medically needy. "
The question is very specifically answered with specific references to the regulations and to the statute.
Unidentified Justice: And that's in your blue brief?
Mr. Deford: There is a citation to that in the brief, Your Honor.
Unidentified Justice: At what page?
If you don't have it right off hand, just go on, if it's in the brief.
Mr. Deford: I don't have it but it is in there.
Unidentified Justice: What did you say PIQ stands for?
Mr. Deford: Your Honor, I'm afraid I don't know.
Unidentified Justice: Mr. Deford, somewhere, at your leisure, will you be sure to comment on the Boren/Long Amendment?
Mr. Deford: Yes, definitely, Your Honor.
The interpretation which plaintiffs are offering of the statute and of the regulations is not one which we have invented off the top of our heads.
It is one which the Department of Health, Education, and Welfare and then the Department of Health and Human Services, its predecessor, have repeatedly and consistently announced.
In evaluating that reasonable and consistent interpretation of the statute, the 2nd Circuit, the 4th Circuit, a federal judge in Boston, and a New York State appellate court have all agreed that it is a reasonable determination of the responsible federal agency.
Mr. Justice Marshall last summer in denying New York's request for a stay in the Caldwell v. Blum case, also noted that it was a reasonable interpretation of the Social Security Act.
I'd like to briefly go through the facts of this case because I do think they provide an important lesson in how California applies its transfer of assets rule.
For the most part the facts are not in dispute.
This case was resolved in the District Court on cross-motions for summary judgment.
The two major important facts undisputed are these, that Antonia Beltran did transfer property for less than fair market value, and secondly, that but for that transfer and the application of California's transfer of assets rule, she would have been eligible at all relevant times for medically needy Medicaid coverage.
Specifically, in February, 1977, she and her husband gave their property to their three adult children.
At that time Mrs. Beltran was not Medi-Cal.
As far as the record shows she was not even aware that Medi-Cal existed.
I should note that Medi-Cal was California's name for the federal Medicaid program.
Three months later, at the insistence of her doctor, she applied for and received categorical coverage in the form of a Homemaker Chore Services individual who is paid by the state to come in and help people who are unable to cook and take care of themselves.
At the same time the social worker determined that she was eligible for Medicaid.
As near as we can determine, it's never been specifically cleared up if that was categorically needy Medicaid coverage that she was found eligible for.
So that within three months of the transfer she was found eligible for Medicaid.
About ten months later she was forced to go into the nursing home.
At that time, of course, her homemaker chore services were cut off.
For reasons which have never been clarified, she remained eligible for Medi-Cal until August of 1978.
She was then found ineligible and she reapplied two months later.
At that time she was forced to apply as a medically needy individual, not a categorically needy individual.
Several months after that the state for the first time found her ineligible for Medicaid, based on the transfer of assets which had taken place in February, 1977.
Thus, in the course of two years, she was first... after the transfer, she was first found eligible for Medicaid as categorically needy, and then found ineligible for Medicaid as medically needy.
After being denied eligibility she filed a motion to intervene in the then-pending Dawson v. Beach case, which was on the verge of being resolved by summary judgment motions.
The defendants did not oppose that motion, and she was permitted to intervene.
I should also add, it's not on the record, but I think it would be helpful for the Court to know that after the 9th Circuit's decision in May, 1980, Mrs. Beltran reapplied for medically needy eligibility on the premise that the period of ineligibility which the state had previously determined was too long.
She was found eligible at that time, retroactive to March 1, 1980.
As a result, Mrs. Beltran's period of ineligibility ran for 16 months, from September, 1978, to February, 1980.
During that period, as I've noted, she ran up nursing home bills of just under.
$15,000 and those bills remain unpaid.
Unidentified Justice: Mr. Deford, can I ask you a question?
As I understand your statement of the facts, she was eligible for SSI benefits?
Mr. Deford: I don't think she ever received SSI benefits because I don't think she applied for SSI benefits.
Unidentified Justice: She was eligible for it?
Mr. Deford: She was eligible for SSI benefits and I believe that because the state has admitted she was--
Unidentified Justice: Oh, but she was not actually receiving them?
She couldn't claim under subparagraph (a) then?
See, I thought--
Mr. Deford: --I believe subparagraph (b) allows an individual to claim whether or not they are receiving the benefits.
Unidentified Justice: --Well, then, it seems to me, if your facts are right, she's eligible under (a) and you don't even have to reach the comparability clause.
Mr. Deford: The difference, Your Honor, is that when she went into the nursing home she could no longer apply or be eligible for SSI benefits.
She had to apply as medically needy at that point, and so that changed the whole process.
The basis of our argument, and that on which the Department of Health and Human Services has rested its interpretation, is 42 USC... I'm sorry to give this lengthy cite, but it's the only one we have... Section 1396a(a)(10)(C)(i), which is as far down as the Medicaid statute goes.
Unidentified Justice: Wait till next year.
Mr. Deford: That statute defines the medically needy and it defines them as identical to the categorically needy in every respect save one, and that is that they have greater income or resources, greater gross income or resources before the cost of medical care is taken into consideration.
Unidentified Justice: Is that cited in your brief?
Mr. Deford: Yes, Your Honor, it is.
I believe it is.
Congress concluded that the medically needy, once their medical costs were taken into consideration, were virtually identical with the categorically needy.
They were equally impoverished and therefore equally deserving of Medicaid coverage.
That statute essentially says that except for income and resources, this individual is identical with an SSI recipient, is identical with someone eligible for categorical coverage.
The statute essentially asks the state to make this inquiry: but for this individual's income and resources, which are over the categorical levels, would this individual be eligible for SSI?
If the answer is SSI recipient, the same is a categorically needy individual.
Consequently, HHS has determined regularly and repeatedly that on the basis of this statute a state cannot apply more restrictive rules to the medically needy than to the categorically needy.
As a result of that the state is not permitted to apply transfer rules only to the medically needy and to disenfranchise them from eligibility when the identically situated categorically needy individual remains eligible for benefits regardless of any transfers that that person may have undertaken.
Unidentified Justice: Now, when you say HHS, you're referring to the PIQ that you referred to?
Mr. Deford: HHS is the Department of Health and Human Services--
Unidentified Justice: I realize that.
Mr. Deford: --At the time the PIQ came out it was the Department of Health, Education, and Welfare.
Unidentified Justice: Yes, but when you say it is determined that this is in doubt, you're referring to the PIQ that you--
Mr. Deford: The PIQ and other publications which HHS and its predecessor, HEW, have put out at various times in the last few years.
Unidentified Justice: --But can you identify them any further than saying that they're in the CCH?
They're not in the federal--
Mr. Deford: Well, there is a... the guideline which I was referring to earlier, Your Honor, is known as the HCFA... which stands for Health Care Financing Administration, which is the part of HHS which is in charge of Medicaid rules... Regional Office Manual Part 6, Medicaid Guideline and Transmittal No. 31.
It is that which is reprinted in CCH Medicare-Medicaid Guide, and which we have cited in the brief.
And that it bases its decision on the regulations and on the statute to determine that they cannot treat the medically needy differently from the categorically needy, and therefore cannot apply the transfer rule.
That is the official guideline issued by HHS.
Unidentified Justice: It may be official but doesn't the state have to submit a plan?
Mr. Deford: The state does have to submit a plan.
Unidentified Justice: And doesn't it, before it gets federal funds, it has to have it approved?
Mr. Deford: That's correct.
It has to have a state plan approved--
Unidentified Justice: And the plan has retained approval?
Mr. Deford: --The plan has retained approval.
Unidentified Justice: No move has been made by the Department to--
Mr. Deford: No, that's not true, Your Honor.
The Department of Health and Human Services has moved against the State of California--
Unidentified Justice: --When?
Mr. Deford: --Well, it began, I believe, in the spring and summer of this--
Unidentified Justice: For this reason?
Mr. Deford: --Yes.
It's specifically on this issue.
HHS has informed California that it is out of compliance with federal law--
Unidentified Justice: Is that in the record?
Mr. Deford: --Yes, it is.
A letter that was sent to Defendant Myers--
Unidentified Justice: Where is that?
Is that in--
Mr. Deford: --Yes, it's attached--
Unidentified Justice: --It's in the Appendix?
Mr. Deford: --No, it's not in the Appendix.
It's attached, I believe, to our summary judgment motion or to our reply and therefore is in the record.
Unidentified Justice: And there was no counter affidavit submitted to it, I don't suppose?
Mr. Deford: As far as I know, California does not dispute that it is applying the transfer of assets rule to the medically needy--
Unidentified Justice: Who signed that letter, the Secretary?
Mr. Deford: --No, it was signed by the Regional Director of the region in which California is.
Unidentified Justice: So that is probably the most official--
Mr. Deford: Yes, but that letter is based on what HHS as an entity in Washington has said is the proper authority.
And the Regional Director speaks for the Secretary, he's not speaking on his own authority.
Unidentified Justice: --Well, the Regional Director may have made a mistaken interpretation of the Secretary's views, though.
Mr. Deford: Your Honor, I don't think, given what the PIQ says and given what other guidelines say, that the Regional Director could have made a mistake on this point.
Unidentified Justice: Well, I agree, but with not having the PIQ in front of me I'm unable to form a judgment.
Mr. Deford: I think the publication which I have mentioned which we have cited sets this out quite explicitly and it was a publication, it has been a publication available to all the states.
Unidentified Justice: Is that kind of a letter within the discretion of the regional director, if he's going to start proceedings or threaten to cut off funds?
Doesn't he have to have approval from someone before he writes a letter like that or not?
Or do you know?
Mr. Deford: I'm not aware, Your Honor, of what the rule is on that.
I should point out that, as I noted before, HHS has developed this policy with respect to transfer of assets rules based on explicit regulations.
42 CFR Section 435.401(c)(2) implements the statute by stating with no exception that a state cannot apply more restrictive rules to the medically needy than to the categorically needy.
That is the general rule and it is set out quite explicitly in the regulation.
Specifically, HHS has implemented this policy in 435.840(a) and.841(a) by saying that a state must use the most liberal resource standards in determining medically needy eligibility which are used in the categorical programs of AFDC or SSI.
Obviously, if there's no transfer rule applicable to SSI recipients, the most liberal resource standard would be no transfer rule for medically needy applicants.
Furthermore, in 435.845(b), the regulation specifically requires that in determining available income and resources a state can only look to those resources which the individual has at present or up to six months in the future.
It forbids a state implicitly to look at any resource which the individual had in the past, regardless of why the individual no longer has that resource.
Unidentified Justice: In your point that the regulation permits differential only on the basis of resources.
In effect, the transfer of assets rule could and partially was held by the 9th Circuit to be just that, pertinent based on differential resources, was it not?
Mr. Deford: I'm not sure I understand, Your Honor.
The 9th Circuit held that the transfer of assets rule was a financial condition of eligibility.
It was quite explicit on that.
Unidentified Justice: Well, but, could it not just as easily have held that it was a treatment differential... agreed... but based on difference in resources which is permitted under regulations?
Mr. Deford: I'm not familiar with that aspect of the opinion, Your Honor.
I guess I'm not following the questioning.
Unidentified Justice: Well, look at your brief on page 22 and the two regulations you've just cited, which say that the two categories must be treated identically except for income and resources.
Mr. Deford: Regular or reply brief, Your Honor?
Unidentified Justice: Your blue brief.
Mr. Deford: Right.
The except-for-income-and-resources clause means that... it does not mean that we eliminate financial conditions of eligibility from this general standard.
That language is taken directly, quoted from the statute itself.
All that means is that when evaluating who we have here, you determine through the except-for-income-and-resources clause whether we have a medically needy person or a categorically needy person.
That language is directly out of the statute except for income and resources.
And it means that a state determines an individual should be eligible for medically needy as if they were an SSI person, because we don't look at income and resources, we look only at their categorical status.
I'd like to reserve the rest of my time for rebuttal, if I could.
Unidentified Justice: Well, do you want to make any comment on these amendments?
Mr. Deford: Your Honor, I was going to save that for rebuttal but I'll speak now to that.
The Public Law 96-611, Section 5, which was passed by Congress in December of 1980 does modify the congressional policy towards transfer of assets.
It allows a state to implement a rule which denies eligibility to a Medicaid recipient who has transferred assets in the past with the intent of attaining eligibility for Medicaid.
I think it is very important to recognize, however, that that statute continues the general congressional policy that the medically need should be treated no more restrictively than the categorically needy.
Congress still requires that both the medically needy and categorically needy be treated the same.
A state would not be able to apply that transfer rule to only one group or the other.
Unidentified Justice: Well, my question is, in the light of the amendment to the statute, what continuing general importance does this case have?
Mr. Deford: The amendment to the statute does not go into effect for Medicaid reasons until July 1, 1981.
Consequently, the present law, whatever that is, will be in effect until that date.
So there are people now in California who have been and will continue to be denied eligibility based on the present California transfer of assets rule.
Unidentified Justice: Well, it'll be important, as all these cases are, to the litigants all right.
I wondered what... isn't the general importance of the issue on which the courts of appeal have divided, much less as a result of the Boren-Long Amendment?
Mr. Deford: The general importance in terms of the amount of money involved both to the state and federal governments is obviously reduced because states will now be able to deny eligibility.
On the other hand, the general rule of the importance of comparability between the medically needy and the categorically needy remains an important issue in a number of other areas.
Moreover, there are thousands of Californians who have been affected by this transfer rule who are presumably members of this class, and who now owe nursing homes many thousands of dollars.
So it remains significant in that respect.
I admit that, obviously, since this law will change on July 1, it does not have the same significance it had when this Court granted cert in November.
I would just remind the Court that we did make a motion summarily to reverse this case after the new statute came down and the Court denied that motion.
We felt that the new statute, and still do, explicitly suggests, at least in the legislative history, that the entire focus of the new legislation is to replace a vacuum, that prior to the new legislation a state could not utilize a transfer of assets rule but now under the new legislation effective July 1 it can utilize a transfer rule.
And to corroborate that entire impression, the present California law violates controlling federal law.
Unidentified Justice: What is the consequence of the 9th Circuit opinion?
Is it anything more than that the children or the other transferees who receive the parents' money, bank accounts, stocks, or whatever, must disgorge and use that money to pay?
Mr. Deford: In many instances the children don't have the money.
They've already used it.
In any event I don't think that's the issue here, Your Honor.
There's no dispute that all these transfers were legal and binding transfers.
What California is doing is that if anyone is at fault it is probably the person who received the property.
But the burden is placed on the individual who needs the Medicaid coverage, who needs the health care coverage.
And that individual is left holding the bill.
Unidentified Justice: Of course, there's some importance as to the motive of the person who made the transfer.
Mr. Deford: I believe there is some importance and Congress has recognized that in new legislation, but the motive as it's described in the new legislation is not nearly as restrictive as is described in the present California law, especially as the present California law is implemented.
I'd like to reserve the rest of my time if I could.
Chief Justice Burger: Mr. Magasin.
ORAL ARGUMENT OF RICHARD J. MAGASIN, ESQ., ON BEHALF OF THE RESPONDENTS
Mr. Magasin: Mr. Chief Justice, and may it please the Court:
The issue involved in this case is whether California's transfer of assets rule conflicts with the federal Medicaid statute.
The transfer of assets rule denies benefits to a medically needy individual who has transferred his assets so as to qualify for medical assistance.
It is apparent that the Federal Supremacy Clause should not be employed to void provisions of a state program unless there is clear congressional intent to do so.
The transfer of assets rule is designed to effectuate the purposes of the Medicaid program by protecting the public treasury and insuring that benefits are paid to those truly in need.
It denies eligibility to those individuals who manufacture eligibility by transferring their assets to relatives in order to qualify for medical assistance.
Unidentified Justice: Mr. Magasin, is it limited to relatives?
Mr. Magasin: No, it would be--
Unidentified Justice: Any third person?
Mr. Magasin: --Correct.
The most common situation would be a transfer to relatives.
Unidentified Justice: To children.
Mr. Magasin: Children: yes.
Unidentified Justice: Mr. Magasin, before you get into your argument, can I just ask you a question about that.
Supposing the transfer is of sufficient assets to bring the transferor down into an income level that will make him or her eligible for SSI benefits, would he not then be eligible under Subparagraph (a)?
Mr. Magasin: To the extent that there would be a transfer.
Unidentified Justice: And it was deliberate and all the rest.
But as I understand it, we're really only dealing with the transfers that are not quite as large as they might have been and even under your view they could transfer some more assets in order to get down under the SSI level and then become eligible.
Is that right?
Mr. Magasin: Well, to the extent they transferred all of their assets and also with the income and resource level requirements of SSI, conceivably they could qualify for SSI and be eligible--
Unidentified Justice: And then if they're qualified for SSI, they automatically get the Medicaid too, even if they got to be qualified by reason of a transfer of assets?
Mr. Magasin: --Yes.
The reason for this is because under the SSI program we're obligated to follow the SSI standard, so under the SSI program, at least prior to the Boren/Long Amendment, a transfer of assets even for a valuable consideration to a relative or to a friend would make him eligible.
Unidentified Justice: Right.
Mr. Magasin: The striking down of the transfer of assets rule will in effect serve to benefit the inheritance of relatives and this will clearly be at the expense of the taxpayers.
Of course these policy considerations would carry little weight in the face of explicit federal statutes prohibiting a state's transfer of assets rule.
However, this is not the case.
The petitioner cannot point to a single statute which specifically precludes a state from employing this rule.
This is even more apparent when one reviews the facts in this case in the overall administration of the Medicaid and Medi-Cal programs and the specific statutes and regulations under consideration.
The Medicaid program was established by Title XIX of the Social Security Act.
It is a cooperative federal-state program.
Its purpose is to provide medical assistance to needy individuals.
To participate states must comply with certain requirements.
First, they must adopt a state plan which meets the approval of the Secretary of Health and Human Services.
I may comment that the Secretary of Health and Human Services as well as the Secretary of HEW has consistently approved California's state plan and in fact we've been receiving billions of dollars in federal aid.
In addition, the states must--
Unidentified Justice: Well, didn't your brother tell us that recently a regional director, I think, has advised California that it's not in compliance?
Mr. Magasin: --In 1978 we received a letter from a regional director advising California that it was in noncompliance.
However, no formal noncompliance hearings have been held, which is the prerogative of the Secretary of Health and Human Services pursuant to Title XIX.
Unidentified Justice: How long has this case been going on?
Mr. Magasin: Well, this lawsuit was commenced in 1978.
Unidentified Justice: Before or after the letter?
Mr. Magasin: After the letter.
Unidentified Justice: Usually, they wait till they see the outcome of litigation.
Well, before you leave that, counsel, the letter doesn't constitute a determination of noncompliance, does it?
Mr. Magasin: That is correct, Your honor.
Unidentified Justice: The letter merely raises an issue and there must be a proceeding of some kind to determine whether that suggestion is correct.
Mr. Magasin: Precisely.
There's a special administrative proceeding whereby the Secretary of Health and Human Services affords notice and there's a hearing and the Secretary has the option of cutting off funds.
This has not been the case in this lawsuit.
Unidentified Justice: So you're telling us, in effect, that whatever the position was of the regional director or Washington on this subject, it was never pursued, never carried out?
Mr. Magasin: Correct.
Unidentified Justice: And meanwhile California has been administering its transfer of assets rule?
Mr. Magasin: The state must provide medical assistance to a statutorily defined group of needy persons.
This group is called the categorically needy.
Now, to qualify as categorically needy, two criteria must be satisfied.
First, the individual must be aged, blind, or disabled, and secondly he must qualify for financial assistance under either one of two welfare programs.
This includes the SSI program, the supplemental security income for aged, blind, and disabled under Title XVI; or the Aid to Families with Dependent Children under Title IV(a).
Now, it should be noted here that the categorically needy are eligible for financial assistance under these programs because they do not have the wherewithal to pay for their own essentials.
Of necessity it makes sense that states be required to provide medical assistance to these individuals.
Now, there is another group of individuals, and this is what this lawsuit is all about, the medically needy.
Now, states have the option of covering the medically needy.
We should emphasize the states have the option of participating in the Medicaid program.
So, arguably it was never the intent of Congress that the medically needy get benefits automatically.
States would have to participate in the program first, and then the states would have to opt to serve this group.
Now, the medically needy consists of all the individuals who would qualify for SSI or AFDC except they have sufficient income and resources to cover their essentials apart from their medical expenses.
So, conceivably, anyone can be considered a potentially medically needy person, anyone with substantial assets facing potentially substantial medical expenses could fall into this class so long as they are aged, blind, or disabled.
Now, they begin to receive medical assistance after they incur medical expenses which reduce their income and assets below a prescribed level.
So the medically needy must incur medical expenses before they become eligible.
That's a very important difference, and the reason for that is because they have sufficient income and resources or, arguably, they have sufficient income and resources which will be applied toward their medical expenses.
Now, California has obviously chosen to participate in the Medi-Cal program, and as I indicated, the state plan has been approved.
And California has opted to provide this coverage to this medically needy group.
Many states don't even get into coverage to medically needy individuals.
As part of its plan California has adopted the transfer of assets rule.
Now, what is this rule?
The transfer of assets rule creates a rebuttable presumption that any transfer of assets for less than adequate consideration within two years prior to applying was made with the intent to qualify for medical assistance.
Now, to rebut the presumption, the applicant may produce evidence that adequate resources were available at the time of the transfer for their support and medical care considering such things as the applicant's competency and life expectancy and health at the time.
If the applicant fails to rebut the presumption, then the states can deny benefits.
Unidentified Justice: How long may benefits be denied?
Mr. Magasin: Benefits are denied for a period of time in which the value of the asset would have sustained their needs including their medical expenses.
That's why Mrs. Beltran ultimately attained eligibility.
Unidentified Justice: In other words, the value had been eaten up by the?
Mr. Magasin: Exactly.
Unidentified Justice: I see.
Was that for a long period, in her case?
Mr. Magasin: Well, it was very interesting.
Her eligibility was estimated as a great period of time but as it turned out it was only for a couple of years.
Now, the facts in this case are that Mrs. Beltran had sufficient assets that could have been used to support her present need, medical needs.
She had them.
However, she transferred her assets for less than adequate consideration with the intent to qualify for assistance and this transfer was made to her children.
Now what's very important here is that she never bothered to request a fair hearing to produce evidence to rebut the presumption.
In fact, the facts here are a bit confusing.
We don't know what... arguably Mrs. Beltran could have rebutted the presumption if she could have shown at the time that she had sufficient assets to meet her present needs considering such things as her health and life expectancy.
So she didn't even bother to request a fair hearing.
Now, she was disqualified for medical assistance under the medically needy program.
We submit that the purpose of the transfer of assets rule is consistent with the Medicaid program.
As I indicated, it's to protect the public treasury and to insure the benefits of aid to those truly in need.
Now, it should be noted here that without the transfer of assets rule aged, blind, and disabled individuals would be able to transfer their assets and not use them to defray the cost of their medical expenses, thus encumbering the program with substantial expense.
Now, it should be noted that nationwide, aged, blind, and disabled individuals become most likely to require hospital, skilled nursing and intermediate care facility services, which are the most costly under the program.
Individuals who in addition, elderly individuals who enter nursing homes, may remain there for a long period of time or, unfortunately, permanently.
In New York, for example, it is estimated that a single month of nursing care was as much as $2,000.
So this is really a very significant group of benefits we're talking about here.
Now, the transfer of assets rule also has another purpose that discourages the intentional divestment of assets.
That is, it prevents individuals with substantial assets from transferring their property.
Now, the Senate Finance Committee, interestingly enough, noted that the transfer of assets in good faith... you know, you didn't know about Medi-Cal, you didn't know about benefits... is really very rare.
It's rare, and... as the Senate Finance Committee found out, also, the transfer of assets rule by some courts has been found to implement another important policy procedure under the Social Security Act.
That procedure is a fraud preventive measure.
Now, arguably, the transfer of assets rule is not in the type of fraud that we normally think of.
However, an application for medical assistance made after a transfer of assets is a type of misrepresentation as to the applicant's available resources.
On the one hand he comes in and he says I don't have any resources; yet, before, he did.
And this misrepresentation is made at the expense of the public treasury.
Unidentified Justice: Incidentally, weren't these assets houses that she... that they turned over?
Mr. Magasin: Yes, yes.
In Beltran the house was transferred to the children.
Unidentified Justice: Was it one house or two houses?
Mr. Magasin: I believe--
Unidentified Justice: I thought there were two houses.
Mr. Magasin: --There may have been two parcels of property.
Unidentified Justice: Yes, and then one... the elderly couple, they're in their late 80s, aren't they?
Mr. Magasin: I believe so.
Unidentified Justice: 88 or something?
I thought they continued to live there?
Mr. Magasin: Well, to be quite candid with the Court, there was never a fair hearing so these facts never came out.
Those are the facts that petitioner represents to us and to the extent those are true, that clearly is--
Unidentified Justice: Well, how do you go about evaluating under the transfer of assets rule what's been transferred?
Mr. Magasin: --Well, the first thing we look at is to determine whether or... we look at the asset being transferred.
Not all assets... for example, some assets are excluded.
Unidentified Justice: A homestead, for example, might be if it's the only place an elderly couple like this can live?
Mr. Magasin: --Yes.
A home is not, for example, considered for purposes of establishing eligibility under the Medi-Cal program.
A car; certain income-producing real property; they are personal effects.
All of these types of factors are not really considered.
Unidentified Justice: Was this valuation arrived at at some kind of formal hearing or what?
Mr. Magasin: Well, essentially, what happens is an applicant goes into the office and presents certain factors.
Now, in this situation, when it was disclosed that in fact there was a transfer of assets, then all of a sudden the presumption arose and the petitioner had the ability to request a fair hearing to be able to show that she could rebut the presumption.
Unidentified Justice: Yes, but since suspension of assistance is only for so long as it takes to exhaust the value of the transferred asset, there must be some proceeding by which the value is put on those transferred assets, isn't there?
Mr. Magasin: Yes.
For example, if the home is valued, say, at $20,000 and it is transferred, then if it's determined that that $20,000 was--
Unidentified Justice: Who makes that determination?
That's what I'm trying to get at.
Mr. Magasin: --That would be the local welfare office.
Unidentified Justice: And is there a hearing that?
Mr. Magasin: Well, they can request a hearing.
Normally, what happens is there's a notice of action which goes out saying, you are being denied benefits.
Unidentified Justice: And we put a value on your transfer of $50,000 and until that's eaten up you are no longer entitled to assistance.
Mr. Magasin: --Exactly.
In addition, the notice says, you may request a fair hearing to produce evidence to rebut the presumption.
Unidentified Justice: You mean there was no request here?
Mr. Magasin: There was no request here: yes.
The transferred assets--
Unidentified Justice: Is there anything in the regulation or the statute which has the presumption reach the level of an irrebuttable presumption after a lapse of time?
Or is there no time factor?
Mr. Magasin: --You mean with respect to the period of eligibility?
Unidentified Justice: No, the period... they could have had a hearing; they didn't ask for one.
They didn't pursue any such remedy.
At some point that presumption must achieve a greater status by the failure to challenge it, does it not?
Mr. Magasin: Well, to the extent that it's not rebutted, yes, to that extent the presumption would hold up and then my answer is, yes.
It also should be noted that the transfer of assets rule embodies a well-recognized prohibition known to the law for many years against fraudulent transfers to defraud creditors.
This is known in bankruptcy law and in other areas of the law.
Finally, turning to the specific statutes at issue in this matter, it should be emphasized that there is no statute under Title XIX which specifically prohibits a transfer of assets rule.
And it should also be noted that states have considerable flexibility in the administration of the program.
This is a cooperative federal-state program which gives the states a certain amount of flexibility in considering various eligibility requirements.
Now, turning now to Section... now, to repeat that long Section 1396a(a)(10)(C)(i), a look at that statute, which is the guiding principle here, there is no statement about a transfer of assets.
The plain language of the statute doesn't say you can't impose a transfer of assets rule.
In addition, the only... and we look at the other portions of the statute, now, it may be read as requiring that the evaluation of the applicant's income and resources be determined by using comparable standards.
So then one wonders, what is comparable standards?
And the 9th Circuit found that comparable standards by virtue of Webster's is not identical standards.
Comparable standards are similar standards, and clearly California applies similar standards to its--
Chief Justice Burger: We'll resume there at 1 o'clock.
You may continue, Mr. Magasin.
Mr. Magasin: --As I have previously indicated, there is no statute under Title XIX which specifically prohibits a transfer of assets rule.
A transfer of assets rule is, first of all, consistent with 42 USC 1396a(a)(10)(C), and as I indicated, the plain language of the section does not preclude such a rule.
The first part of the statute provides that the medically needy group includes all individuals who would, except for income and resources, be eligible for SSI.
Now this section may be read as specifically excluding income and resources and it equates the SSI eligibility to the medically needy eligibility requirement.
Now the transfer of assets rule can clearly be construed as a financial eligibility requirement which pertains to the applicant's income and resources, and therefore clearly comes within the exception to the first clause of the statute.
Now, the second part of the statute, the gist of which provides that the medically needy group includes all of those individuals who have insufficient income and resources as determined under comparable standards to pay for their own medical care.
Now, this section may be read as requiring that the evaluation of the applicant's income and resources be determined by using comparable standards.
And as I indicated, comparable does not necessarily mean identical; only similar.
Unidentified Justice: What do you think the comparable refers to?
Comparable to what, in your view of the statute?
Mr. Magasin: Well, the 9th Circuit found that the comparability in this clause referred to... they didn't specifically say it, but they read it that it might require comparability between the categorically needy and the medically needy.
On the other hand, there is legislative intent which suggests that comparability between these groups was never intended by the second part of the statute.
Unidentified Justice: My question is, how do you read it?
Mr. Magasin: Well, I would submit that the legislative intent seems to be clear in this regard.
However, I would give more credibility to the 9th Circuit's opinion in this matter.
Unidentified Justice: I still don't understand how you read it.
Mr. Magasin: I would submit that there would be comparability between the medically needy and the categorically needy.
As I said, there is a conflicting interpretation of those words.
Unidentified Justice: In other words, that the standards for determining SSI eligibility must be comparable to the standards for determining Medicaid eligibility?
Mr. Magasin: Yes, this reading.
Unidentified Justice: And in SSI eligibility, it does prohibit the transfer of assets rule?
Mr. Magasin: That's correct.
Unidentified Justice: So if the comparability concept includes it, you'd say the the same rule would apply?
Mr. Magasin: No, I would submit that this excepts our income and resource standards, that they don't have to be the same, that you could have a transfer of assets restriction and this would be similar, but not necessarily identical.
Now, the transfer of assets rule is also consistent with 42 USC Section 1396a (a)(17)(B).
Now, this section requires that only available income and resources considered in making eligibility determinations be considered under the Medicaid program.
Now, when you look at this statute, which is also supposed to conflict with the transfer of assets provision, we notice that there is no plain preclusion of the transfer of assets rule in this section either.
Now, there is nothing in the legislative history which prevents the consideration of a transferred asset as available.
In fact, the purpose of the availability rule prevents the counting of assets of a relative as available to the applicant.
Transfer of assets rule... this section is not meant to apply to a person who manufactures eligibility by giving away assets that could be used for medical expenses.
Now, the transfer of assets rule is also consistent with a federal regulation which the petitioners cite.
This is 42 CFR, Section 435.401(c).
Now this section in effect provides that states not use requirements for determining eligibility for the medically needy which are more restrictive than those used for the categorically needy.
Now, we submit that this section does not apply to a financial eligibility requirement such as the transfer of assets rules.
We base this opinion as follows.
The section was found under the general heading and title,
"Subpart (e), General Eligibility Requirements. "
Now Subpart (e) does not apply to financial eligibility conditions.
It applies to citizenship, alienage, or state residents.
Now, further support for this interpretation is found in a prior wording of that section.
The prior wording specifically states that it is meant to refer to nonfinancial eligibility requirements.
Now, it's very interesting to note is that within Part 435 of the CFRs, Subpart (i) specifically covers financial eligibility requirements for the medically needy.
In this section it would be logical you would see a transfer of assets restriction.
There is no such restriction in Subpart (i) which specifically deals with income and resource requirements for the medically needy.
I would like to also discuss the Boren/Long Amendment.
Now, it has been argued that the Boren/Long Amendment precludes the imposition of a transfer of assets rule prior to the enactment of the law.
Now, the law itself was signed into effect on December 28, 1980, and has been designated Public Law 96-611, Section 5.
It's interesting to note that it not only permits transfer of assets rules in a Title XIX program but it also permits them in a Title XVI program, the SSI-SSP programs.
Now, it's also very interesting to note is that Congress in these provisions of the Boren/Long Amendment, these provisions are very similar to California's transfer of assets restriction.
There are some differences but they are very similar.
Congress's intent in enacting this Boren/Long Amendment was to correct an abusive practice whereby individuals transfer substantial assets to relatives to qualify for medical assistance.
So Congress recognized the problem that California had noted all along.
Now, it should be noted that not every amendment of a statute demonstrates legislative intent to make a change in the substance of a preexisting law.
We would submit that the Boren/Long Amendment constitutes an exclusive permission to the states to impose a transfer of assets rule, and this is further buttressed by the fact that certain reports of the Senate Finance Committee suggest that the Amendment was the result of congressional desire to remedy the effect of erroneous court decisions striking down the rule, so apparently Congress was aware at this time of these decisions perhaps in the 2nd and 4th Circuits striking down the rule and said, we don't want to give credibility to those decisions, we are enacting this provision, and we want to make sure that it is not intended to show that we agree with those decisions striking down the rule.
Based on the foregoing, the 9th Circuit opinion should be affirmed.
If there are no more questions, this concludes our presentation.
Chief Justice Burger: Very well.
Do you have anything further?
Mr. Deford: Yes, Mr. Chief Justice.
Chief Justice Burger: You have two minutes remaining.
ORAL ARGUMENT OF GILL DEFORD, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL
Unidentified Justice: Mr. Deford, before you commence, may I ask what relief you now think would be appropriate in light of the amendment to the statute?
Mr. Deford: The appropriate relief now would be for the District Court to notify the members of the class of the decision of this Court, if it reverses, and to allow those individuals to apply for the state administrative processes to obtain the amount of benefits which they have been denied by the illegal transfer of assets rule in the past.
Unidentified Justice: Would you have any problem under the Eleventh Amendment?
Mr. Deford: No, Your Honor, I think the Quern v. Jordan specifically deals with that issue in which this Court determined that notification does not violate the Eleventh Amendment, where a federal court ordered payment... in that calendar--
Unidentified Justice: Is that California--
--The state could turn them down, I take it, then?
Mr. Deford: --The state could turn them down?
I believe the state would have to notify them.
Unidentified Justice: It could notify them to apply, but it could turn them down.
Mr. Deford: Not on the basis of the transfer of assets rule, Your Honor.
It would have to notify them that if they had otherwise been eligible except for this rule, which has since been declared invalid, they would have the opportunity of recovering the amount of benefits which they had lost or had otherwise to pay out.
Unidentified Justice: But it would be in a state proceeding?
Mr. Deford: It would be for the state proceedings in compliance with Quern v. Jordan theory.
Unidentified Justice: You also requested declaratory and injunctive relief.
Would either of those give you anything that... in light of the statutory change?
Mr. Deford: Probably, in light of the fact that this Court could not rule until nearly the time in which the Boren/Long Amendment goes into effect for Medicaid applicants, injunctive relief would only affect a very few number of applicants in the future.
Unidentified Justice: So your principal reliance would be on reimbursement.
Mr. Deford: Reimbursement, I think, we would need an injunctive relief order to get reimbursement for the members of the class, Your Honor.
Unidentified Justice: Would you have to say anything about the failure to ask for a hearing for a determination to change the presumption?
Mr. Deford: I think the reason we didn't ask for determination is two-fold.
First, it was faster to go through a federal court.
This case was already pending, all Mrs. Beltran had to do was to intervene.
The administrative process in California takes six to ten months.
This process only took three months to get a decision in the District Court.
More important, a decision of the other main plaintiff, Mr. Manahan, should be read by this Court to indicate the unlikelihood that an individual will succeed in an administrative hearing.
That person actually won his fair hearing and then was reversed by the Director, by the defendant in this case without any opportunity to explain his situation.
Unidentified Justice: Are civil cases tried that fast?
Mr. Deford: Well, it's just that this case was about to go off on cross-motions for summary judgment.
We had virtually completed discovery, so the case was in its final stages and Mrs. Beltran's initial decision was--
Unidentified Justice: Well, it's too bad that three months isn't the rule, isn't it?
Mr. Deford: --As far as I'm concerned, it is.
Chief Justice Burger: The more of those cases we get, the greater will be the span of time.
Mr. Deford: Thank you.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.